State's pension systems seeking $2.3 billion in next two-year budget

FRANKFORT — Kentucky lawmakers will be asked for $2.3 billion in public pension contributions this winter as they prepare the state's next two-year budget, potentially diverting more than 10 percent of the budget for the retirement benefits of state workers and school teachers.

The chief pension fund that covers more than 90,600 current and former state workers has $2.6 billion in assets and $11.3 billion in assumed liabilities, making it only 23 percent funded, actuarial advisers told the Kentucky Retirement Systems' board of trustees on Thursday.

That funding level has dropped for years, from 52 percent in 2008 to 27 percent last year. It puts Kentucky at or near the bottom in most state pension rankings.

Pension experts say a funding level of less than 80 percent is problematic because a cash-starved benefits system can't make lucrative long-term investments, and it eventually can't keep mailing out monthly checks without draining money from other public services, such as schools and roads.

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The General Assembly has made attempts at "pension reform" — including Senate Bill 2 earlier this year, which reduced benefits for future state workers — but it's extremely difficult to climb out of the hole dug by two decades of underfunding by governors and lawmakers, pension officials said.

As recently as this year, when the pension system said it needed $485 million in contributions, lawmakers cited a tight budget and provided only 57 percent of the requested amount.

Under SB 2, the legislature committed to fully funding the Kentucky Retirement Systems' budget requests, which was revealed Thursday to be more than $1.5 billion for the next two years, to adequately pay the separate pension and insurance funds for state workers and Kentucky State Police.

KRS will have to stand in line: Many public agencies and interest groups say they plan to request more money from the legislature this winter, and the next state budget is not expected to be much larger than its predecessor. But William Thielen, the KRS executive director, said after Thursday's board meeting that he hopes lawmakers will honor their pension commitment.

"It's in writing, but I know the budget is still tight, the economy has not improved as we hoped it would," Thielen said.

In a statement issued later Thursday, the Facebook community Kentucky Government Retirees said its 2,788 members will lobby their lawmakers against "a betrayal of the pension promise."

Apart from KRS, the Kentucky Teachers' Retirement System — which covers about 140,000 current and former school teachers — says it will ask lawmakers for nearly $800 million in the two-year budget.

Compared to the state workers' fund, the $16 billion teachers' fund is in relatively good shape, with a 54 percent funding level. However, under federal accounting rules expected to take effect in 2015, the system will have to recalculate its unfunded liability from $12 billion to $23 billion if there is no plan in place to stabilize the fund, KTRS executive secretary Gary Harbin said.

The $800 million is needed to help stabilize the fund, Harbin said.

"It's going to be a tough request with the budget; we recognize that," he said.